Category Archives: Homebuying Trends

The market has shaken off the “last excess valuations born of the housing bubble,” and “the worst is definitely over,” according to the January, 2012 issue of Kiplinger’s magazine. (See Patricia Mertz Esswein’s article, “What’s Ahead for Home Prices in 2012.”)

We’ll probably hear debate over that all through 2012. But what was particularly interesting about this projection was the expected result: Not that buyers would say, “Smooth sailing ahead,” and rush back into the market (there’s still unemployment and uncertainty to contend with) but that we will start seeing uneven changes among the various housing markets — price appreciation in some areas, and continued stagnation in others.

That will make it more important than ever to study your local market before attempting to buy or sell a home. People who pay too much attention to national headlines, either thinking they’re going to get a bargain or thinking their home price should have bounced back, may not only find themselves disappointed but lose out on valuable opportunities to buy or sell.

For more information on getting an accurate picture of local real estate market conditions, see Nolo’s free articles, “Listing Your House: What List Price Should You Set?” and “Home List Price: What Is a House Worth?”

You can track the local trends, run numbers through the online calculators, and so on. But in the end, according to what Eli Beracha, co-author of ”Lessons from Over 30 Years of Buy versus Rent Decisions: Is the American Dream Always Wise?” told Amy Hoak of the Wall Street Journal, “We find that if people don’t invest the money [that they save by renting], actually about 90% of the time, you’re better off buying.”

So instead of thinking of a home as an investment, perhaps we should start referring to it as a forced savings plan. Read all about it in the full article, “Making a New Case for Home Buying.” And for more help with everything from affordability to inspections to mortgages, see the Buying a House section of Nolo’s website.

The real estate market clearly needs a shot of adrenalin, and some agents are doing their best to inject it.

In some cases, their strategies for enticing buyers and agents to visit open houses get increasingly wild and expensive with the price of the home. Free mimosas? Check. Shirtless male jugglers? Check. A raffle for Botox treatments? Check. And the cost, sometimes in the thousands of dollars, all comes out of the agents’ pocket.

It’s all detailed in Lauren Beale’s article, “Real estate agents spare no effort to sell luxury homes.” Me, I’d definitely stop by any open house that offered those Thai foot massages.

Of course, if you’re selling a home in the lower end of the range, your agent will likely not be amused by your request that he or she open a free bar on your front lawn.

But when choosing an agent, it’s worth asking what creative approaches he or she has come up with for other properties, and what might work for yours.

Creativity doesn’t always have to be limited by price range. For example, in the book Selling a House in a Tough Market, we describe strategies such as holding specially themed open houses, say, with an architect or contractor on hand to describe how the place could be remodeled, or with art showings in coordination with a local gallery. These won’t cost anywhere near as much as those shirtless jugglers.

Under current U.S. immigration law, a citizen of another country could buy your house — but without a job or close family member, be unable to spend more than six months at a time there, assuming all they qualified for was a tourist visa. In fact, if the immigration officials got to suspecting that your buyer was trying to live in the U.S. as opposed to behaving like a tourist, they might deny even the tourist visa. That’s a pretty major deterrent to overseas home buyers.

But that could change under a new law proposed by Senators Charles Schumer and Mike Lee. As reported by Nick Timiraos in the Wall Street Journal (“Foreigners’ Sweetener: Buy House, Get a Visa), and Jim Puzzanghera and Lauren Beale in the L.A. Times, (“Bill would encourage foreigners to buy U.S. homes“),  the law would offer temporary residence visas to foreigners who spend at least $500,000 to buy houses in the United States. (Such visas aren’t the same as U.S. green cards, and wouldn’t lead to citizenship. Under the proposal, the visas would last three years, with possibilities of renewals.)

What if your house isn’t worth $500,000? A $250,000 purchase of one house to live in will apparently do it, combined with another $250,000 in other real estate investments. One of the biggest groups of buyers will probably be the Chinese — who should have no trouble finding single-family homes that cost at least $500,000 in their likely markets of California, Hawaii, and Texas.

The payment will have to be all cash, with no mortgage.

If you live in an area that might attract overseas buyers, supporting this bill might not be a bad idea. But don’t start counting your profits just yet.

Based on my past experience as an immigration lawyer, I can say that applying for visas is rarely a short or easy process. That’s especially true when the visa officers are being trained in a new law.  And no matter what grounds the person qualifies on, the immigration laws can deny entry based on “inadmissibility,” for example if your buyer has a past criminal conviction or a health problem that could endanger others.  Very likely the buyer would want to make the home sale closing contingent on successfully obtaining a visa, which could leave you waiting for such matters to get cleared up — or not.

The trendspotters are out in force, noting that the tight mortgage market is prompting kids to get financial help from Mom and Dad, in order to take advantage of low real estate prices and buy their first home.

Some wannabe buyers are asking their parents to cosign onto a bank loan, as described in Shandra Martinez’s article in the Grand Rapids Press, “More parents helping their grown kids buy first homes by co-signing mortgage loan or providing financing.” But that has some downsides for the parents’ credit rating — they’ll be viewed as, in effect, having taken on more debt, and their credit will suffer if the buyer defaults. Learn more in Nolo’s Q&A, “Should we cosign for our son’s mortgage?“

Other buyers are going straight to the “Bank of Mom and Dad,” as described in Sandra Block’s article in USA TODAY, “More parents finance their kids’ mortgages.” That has the advantage of keeping all the interest income within the family, as further described in Nolo’s article, “Borrowing From Family and Friends” (which also offers tips on preparing the paperwork).

Wondering when it will become easier to get a mortgage? Don’t start holding your breath until you’ve read Chicago Tribune real estate writer Mary Umberger’s interview with Greg McBride, senior financial analyst for Bankrate, Inc., a Florida-based financial-research firm.

McBride describes the new sobriety in lending as just a return to pre-bubble normalcy. Here’s a summary of some of his other key points:

• The fact that one out of four borrowers are currently being rejected for mortgages still means that three-quarters of applicants are getting approved – not bad when unemployment is over 9%.
• Americans’ median credit score, according to Bankrate Inc’s tracking, is now about 700 on an 850-point scale. That’s not far from where it was a few years ago. Most people do pay their bills on time.
• It takes a score of 680 or above to get a loan today (at least, to get one without difficulty or paying a high interest rate). A score of 740 or above will get you the best interest rate.
• Credit scores aren’t everything in getting a mortgage. You’ll need a combination of good credit, proof of income, and a down payment.
• That down payment won’t necessarily need to be 20 percent. Although new federal regulations (the “qualified residential mortgage” or QRM regs now under consideration) mean the feds won’t, in many cases, back mortgages with less than that amount down, “It’s not that loans that don’t meet the QRM standard won’t be made,” and “Over time, as housing stabilizes, you’ll see a return of credit availability for higher loan-to-value loans.”

I thought I’d seen and read enough about staging to know that depersonalization is the key — you want the house you’re selling to speak to almost anyone, or at least to the most predominant tastes.

That’s why one of the first things a professional stager will do, in helping you prepare a house for sale, is to take down all the family photos. Never mind how warm and lived in they make a house — they also remind buyers that it’s your house. You want instead to seed buyers’ imaginations regarding how great their lives will be when it’s their house.

Given all that, I was surprised, when recently touring a new condo for sale,  to see this photo in one of the bedrooms:
Who’s this kid?

As I mentioned, the condo was new, so he certainly didn’t belong to the owners. “They forgot to take the sample out of the frame,” commented another visitor. Maybe — but don’t those samples usually contain info about the frame size and manufacturer? Not to mention that this kid has that classic inter-ethnic, united colors of whoziwhat look that every marketer strives to portray these days.

So this was a conscious act by the stager. I guess we’re supposed to imagine not only living in the glorious new luxury condo, but doing so with this handsome, polite, universally lovable child. (He’s wearing a tie, for heaven’s sake!)

And who knew, this may be part of a new staging trend?! HGTV’s Debra Gould, in her recent list of “4 Silly Home Staging Ideas to Avoid,” put fake-o photos at the top of the list.  Apparently, she’s even seen cases of where the sellers put up photos of celebrities. Way to make the buyers roll their eyes. . . .

I always find anecdotes as interesting as studies, especially since they sometimes reveal activities that haven’t made it onto the radar screens of those doing the studies. Which is why my attention was caught by a letter to the editor in the July, 2011 edition of Money magazine, titled, “How to Nab a Buyer.”

The writer, a certain Steve from Cincinnati, says that, after three months of watching their house sit on the market with no buyer interest, they decided to offer a $1,000 cash bonus to the agent who brought in a buyer. Lo and behold, a half dozen agents appeared for showings, and they sold the house within two weeks.

It’s a sample of one, but a pretty compelling story. Of course, it then raises the question of, where were all these buyers’ agents before? Presumably they still stood to gain their usual half of the 5 1/2 to 6% commission paid by the seller, and were actively helping their clients look for a home — shouldn’t that have been incentive enough to bring them in?

But if you’re read Freakonomics, you may remember that the real estate agent’s commission isn’t what it appears to be. The 3% percent  commission that each agent walks away with usually gets split with the agent’s agency, leaving only 1.5% of the selling price for the agent. On the sale of a $300,000 home, that would put the buyer’s agent’s personal take at $4,500. Given that amount, an extra $1,000 bonus might start to look pretty intriguing — perhaps leading some agents to look back over their client lists to ask, “Would this place fit any of my clients needs better than I realized?”

Such a scenario is especially plausible given that buyers are moving slowly in this market. Instead of the once-classic scenario of buyers and agents scouring neighborhoods together, with daily phone calls about what’s hot and what’s about to come on the market, I’m hearing more stories of buyers asking agents to “keep their eyes open,” going through brief flurries of househunting, getting cold feet, wondering if now is really the time to buy, going through another flurry of looking, and so on.

Have you or any other home seller you know tried this bonus strategy? If so, please leave a comment.

By now you’ve surely heard the news:  The feds are planning to reduce their presence in the home loan program, by lowering the maximum dollar amounts of loans they will back. This is scheduled for October of 2011, and creating worries that finding an affordable loan will get harder for buyers, thus leading to lowered offers being made to sellers. (Most loans are federally backed — and those that aren’t become so-called “jumbo loans,” offered at higher rates and requiring higher down payments.)

Note that the loan limit varies by area of the United States. So if, for example, you’re reading an article on this topic from a local paper like the Washington Post, but planning to buy a house in Poughkeepsie, the numbers you see mentioned may not apply to you. That’s why you’ll love the handy interactive map and chart provided by The Wall Street Journal in its article, “Sellers Brace for New Mortgage Caps.”

Using this map, I can, for instance, quickly see that here in Alameda County where Nolo is based, the current FHA loan limit is $729,750 (which believe it or not, doesn’t buy you much around here, especially if you’re looking for a good school district); the pending FHA limit is $625,500; and the overall decline will be $104,250. That could completely change the home-buying picture for people who have saved up just enough to put, say, 15% down on a home worth$650,000.

Looking for information overload? Try attending the annual National Association of Real Estate Editor’s Conference in Texas, as I recently did. This event brings together real estate writers and editors to hear from economists, real estate industry insiders, and others, to get a picture of trends and interesting stories in the U.S. market.

By the end of last year’s conference, I’d heard the pundits opine that real estate sales (and therefore prices) were going to go up, down, down in a bad way forever, or just flatten out.

This year’s prognostications were a tad more consistent. In fact, there was a lot of talk about how now is a good time to buy. Here are some of the reasons:

• Home prices are starting to go up. This from Bob Dorsey, of the FNC Residential Price Index, an alternate index to the popular Case Shiller. Dorsey explains that the FNC index leaves out foreclosure sales – which he describes as attracting a completely different sector of homebuyers – revealing that in ordinary, arms-length sales, rises in price are already happening.
• According to Ted Jones, Chief Economist with Stewart Title, interest rates are poised to go up. And there’s no doubt that buying a home costs significantly more if you’re paying higher interest. Meanwhile, viewed over the long term, real estate remains a good investment.
• Sue Stewart, Senior Vice President of Mortgage Match, says, “Many more people are now considering buying their first home than in 2009. These first-timers are important because they’re not adding to the housing inventory when they turn around and sell.”

Still, commentators expressed concern about the number of foreclosures still making their way through the pipeline. One noted that, “According to Case Shiller, prices could still fall 15 to 25%.”

With all of that, I’ll give the last word to Sam Mitts, Executive Managing Director of USAA Real Estate Company. Mitts says: “We’re seeing a shift in thinking. A house is again being seen as a place to live in, not an investment.”

The takeaway message might be that if now feels like the right time for you to buy a home, go for it. If not, your window of opportunity, price-wise, may not close right away – at least not within the foreclosure market, if you’re willing to take the risks associated with buying a distressed property.